Federal agents have charged a Bitcoin dealer and an executive at a Bitcoin company with money laundering for allegedly selling more than $1 million worth of the cyber currency to people doing business on Silk Road, a black market website that dealt in drugs and other illicit goods.

Robert Faiella, 52, allegedly known as "BTCKing," was arrested Monday at his home in Cape Coral, Fla., and charged with money laundering and operating an unlicensed money transmitting business.

Charlie Shrem, 24, chief executive officer and compliance officer at the Bitcoin exchange company BitInstant.com, was arrested Sunday at John F. Kennedy International Airport in New York City. He is charged with money laundering, operating an unlicensed money transmitting business and violating the Bank Secrecy Act by failing to file reports of suspicious activity with the federal government for Faiella's transactions on the Bitcoin exchange.

Bitcoin, launched in 2009, is a decentralized digital currency that is traded from person to person rather than through banks. It is generated by a computer algorithm and has no issuing or regulating country.The currency is not illegal in the United States and many businesses accept it as a form of payment.

Silk Road, an underground drug bazaar shut down by federal agents in October, required all buyers and sellers to transact their business in Bitcoins. Unlike credit cards or checks, Bitcoin transactions can be conducted anonymously, like cash.

Shrem is well-known in the Bitcoin community. He is vice president of the BitCoin Foundation, a trade group that promotes Bitcoin as an alternative currency. In his bio on the foundation's website, Shrem is described as using "his position in both the old banking world and new, alternative currency world to help pave the way for the Bitcoin economy to emerge in early 2011."

In the computer hacker world, the bio says, Shrem is known as "Yankee."

Foundation spokeswoman Jinyoung Lee Englund said the organization is "surprised and shocked" by Shrem's arrest.

"As a foundation, we take these allegations seriously and do not condone illegal activity," she said.

BitInstant.com, one of the earliest Bitcoin businesses, drew interest and investment from the tech-savvy Winklevoss twins, Cameron and Tyler. The brothers' Winklevoss Capital last year invested $1.5 million in the business. In a statement issued Monday, the brothers said they were passive investors.

"When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws -- including money laundering laws -- and we expected nothing less," the statement said. "Although BitInstant is not named in today's indictment of Charlie Shrem, we are obviously deeply concerned about his arrest."

Dissatisfied customers sued BitInstant in July, accusing the company of inflated fees, violating the Electronic Fund Transfer Act and falsely representing its services.

Court papers say Faiella ran an underground Bitcoin exchange on Silk Road from December 2011 until October that allegedly exchanged "tens of thousands of dollars a week" for Bitcoins.

Investigators say Faiella filled orders for Bitcoins through a New York-based company run by Shrem that allowed customers to anonymously exchange cash for Bitcoins for a fee. As the company's compliance officer, Shrem is required to ensure that the company followed federal anti-money laundering laws, the court papers say.

In e-mails obtained by the government, Shrem initially banned "BTCKing" from doing business with BitInstant and sent copies of the e-mail to his business partner and another cash processing business. When "BTCKing" thought Shrem would keep his money, he threatened to report him to the federal government.

"Do not threaten me as you currently sell your services on the illegal Silk Road," Shrem wrote.

But in private e-mails to "BTCKing," Shrem allegedly advised "BTCKing" how to evade money-laundering rules and continue to use BitInstant, an affidavit made public Monday says. Shrem then personally processed Faiella's transactions.

Federal agents say Shrem knew the nature of Silk Road and used it at least once to purchase drugs. In an e-mail sent Feb. 1, 2012, Shrem allegedly wrote that he'd received a shipment of marijuana brownies and marveled, "Wow, Silk Road actually works."